CREDIT

APPRAISAL

IN BANK OF INDIA




PRESENTED
BY :
RISHI
NIGAM

cr

CHAPTER


1


INTRODUCTION


A BANK is a financial institution which accepts different forms of deposits and lends them to
the prospective borrowers as well as allows the depositors to withdraw their money from the
accounts by cheque.
The Banking system has its origin in the western world to which India was introduced by
the British rulers way back in the 17th century. According to Union Budget 2007-08, MoF,
GOI, N. Delhi today Indian banks are considered among the best banks in the developing
world and its attempts to emerge among the best in the world is going on.
The Indian Banking industry, which is governed by the Banking Regulation Act of India,
1949 can be broadly classified as follows:

Brief History:
Initially in India Banks were operated by the private firms. These banks were lending mainly
to large corporate houses and their rate of interest was also very high. Even the Reserve Bank
of India, which was set up in 1935 (by the RBI Act, 1934) was also a private bank. It was
nationalised in 1949, and after then it emerged as the central banking body of India. After
the nationalisation of RBI the Government of India felt the necessity of nationalising some
selected private banks in the country due to following major reasons:
(i) As the banks were owned and managed by the private sector, the services of banks
were having a narrow reach- the masses had no access to the banking service.
(ii) The Government needed to direct the resources in such a way that greater public
benefit could take place.
(iii)The planned development of the economy required a certain degree of government
control on the capital generated by the economy.
Nationalisation of banks took place in the following two phases:


1. Emergence of SBI:
The Government of India, with the enactment of the SBI Act, 1955 partially nationalised the
three Imperial Banks and named them the State Bank of India- the first public sector bank
in India. In a further move towards nationalisation the GoI partially nationalised eight more
private banks via SBI (Associates) Act, 1959 and named them as the Associates of the SBI.
At present the SBI Group has a total number of eight banks- SBI being one and seven of its
Associates.










CHAPTER : 2


ABOUT THE



ORGANIZATION





















2. Emergence of Nationalised Banks:
After successful experimentation in the partial nationalisation, now the Government decided
to go for complete nationalisation. With the help of the Banking Nationalization Act, 1969
the Government nationalised a total number of 20 private banks:
(i) 14 banks with deposits more than Rs. 50 crore nationalised in July 1969, and
(ii) 6 banks with deposits more than Rs. 200 crore nationalised in April 1980.
After the merger of the New Bank of India and Punjab National Bank in September 1993, the
total number of nationalised banks came down to 19. Today there are 27 public sector banks
in India out of which 19 are nationalised.
In the fiscal 1992-93 the Government started a comprehensive banking system reform for its
further expansion:
(i) In 1993 the SBI was allowed access to the capital market with permission given to
sell its share to the tune of 33 percent through SBI (Amendment) Act, 1993.
(ii) In 1994 the Government allowed the nationalised banks to have access to the capital
market with a ceiling of 33 percent sale of shares through the Banking Companies
(Amendment) Act, 1994.

In 1994 itself the Government allowed the opening of private banks in the country. The first
private bank of reform era was the UTI Bank, now known as the Axis Bank. Since then few
dozen Indian and foreign private banks have been opened in the country.

2. Emergence of Nationalised Banks:

After successful experimentation in the partial nationalisation, now the Government decided
to go for complete nationalisation. With the help of the Banking Nationalization Act, 1969
the Government nationalised a total number of 20 private banks:
(i) 14 banks with deposits more than Rs. 50 crore nationalised in July 1969, and
(ii) 6 banks with deposits more than Rs. 200 crore nationalised in April 1980.
After the merger of the New Bank of India and Punjab National Bank in September 1993, the
total number of nationalised banks came down to 19. Today there are 27 public sector banks
in India out of which 19 are nationalised.
In the fiscal 1992-93 the Government started a comprehensive banking system reform for its
further expansion:
(i) In 1993 the SBI was allowed access to the capital market with permission given to
sell its share to the tune of 33 percent through SBI (Amendment) Act, 1993.
(ii) In 1994 the Government allowed the nationalised banks to have access to the capital
market with a ceiling of 33 percent sale of shares through the Banking Companies
(Amendment) Act, 1994.

In 1994 itself the Government allowed the opening of private banks in the country. The first
private bank of reform era was the UTI Bank, now known as the Axis Bank. Since then few
dozen Indian and foreign private banks have been opened in the country.



Bank of India was founded on 7th September, 1906 by a group of eminent businessmen from Mumbai.
The Bank was under private ownership and control till July 1969 when it was nationalised along with 13
other banks.

Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank
has made a rapid growth over the years and blossomed into a mighty institution with a strong national
presence and sizable international operations. In business volume, the Bank occupies a premier position
among the nationalised banks.

The Bank has 4545 branches in India spread over all states/ union territories including specialized
branches. These branches are controlled through 50 Zonal Offices. There are 54 branches/ offices and 5
Subsidaries and 1 joint venture abroad.

The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions Placement in
February 2008.

While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront of
introducing various innovative services and systems. Business has been conducted with the successful
blend of traditional values and ethics and the most modern infrastructure. The Bank has been the first
among the nationalised banks to establish a fully computerised branch and ATM facility at the
Mahalaxmi Branch at Mumbai way back in 1989. The Bank is also a Founder Member of SWIFT in India.
It pioneered the introduction of the Health Code System in 1982, for evaluating/ rating its credit
portfolio.

Presently Bank has overseas presence in 22 foreign countries spread over 5 continents with 56 offices
including 5 Subsidiaries, 5 Representative Offices and 1 Joint Venture, at key banking and financial
centres viz., Tokyo, Singapore, Hong Kong, London, Jersey, Paris and New York


Contribution of foreign branches in the global business of the Bank as at 31.03.2014 is as under:

Deposits 24.91%
Advances 28.42%
Business Mix 26.44%





PRODUCTS AND SERVICES AT A GLANCE:

Deposits Schemes:

1. Star Saving Plus
2. Star Current Deposit Plus
3. Star Diamond Plus
4. Star Suraksha Savings Banking Account
5. Star Benefit Current Deposit Account
6. Deposit Schemes for Global Investors/NRIs
7. Star Supreme Floating Rate Deposit Scheme

Insurance Products:

1. Star Flier Scheme for Individual Diamond SB Customers
2. Star Domestic Travel Insurance
3. Deposit Linked Insurance Plan
4. Family Floater Mediclaim Policy
5. Star Education Loan Insurance Scheme
6. Home Loan Insurance
7. Mutual Funds

Credit Schemes:

1. Agriculture

(i) Agriclinics and Agribusiness
(ii) Cold storage
(iii) Composite Cash Credit Scheme
(iv) Crop Finance
(v) Farm mechanisation, Implements & Equipments
(vi) Financing for Drought Animals & Carts
(vii) Land Development
(viii) Minor Irrigation
(ix) Poultry Development
(x) Purchase of Land
(xi) Rural Godowns
(xii) BOI Shatabdi Krishi Vikash Card
(xiii) Kisan Credit Card
(xiv) Kisan Samadhan Card
(xv) Star Bhumiheen Kisan Card

2. Personal Loans:

(i) Star Mitra Personal Loan
(ii) Star Pensioner Loan Scheme
(iii) Star Home Loans
(iv) Star Holiday Loan Scheme
(v) Star Mortgage Loan Scheme
(vi) Star Autofin
(vii) Star Personal Loans
(viii) Star IPO
(ix) Star Education Loan
(x) Star Mahila Gold Loan Scheme
(xi) Clean Loan/OD for financing Health Insurance Premium

3. SMEs:

(i) Star Laghu Udyog Suvidha
(ii) Credit Linked Subsidy
(iii) Akshay Urja Shops
(iv) Artisan Credit Cards
(v) KVIC (REGP) Scheme
(vi) Laghu Udyami Trade Card
(vii) Priyadarshini Yojana
(viii) Solar Water Heaters Scheme
(ix) Star Dhanvantari Suvidha Scheme
4. Government Sponsored Schemes:

(i) Prime Ministers Employment Generation Programme (PMEGP)
(ii) Swarnajayanti Gram Swarojgar Yojna (SGSY)
(iii) Swarna Jayanti Shahari Rojgar Yojna (SJSRY)
(iv) Scheme for Liberation and Rehabilitation of Scavengers (SLRS)


Debit Cards:

1. Starlinks International Debit cum ATM Card (Visa Electron)
2. BOI Global Debit cum ATM Card (Master Card)
3. Star Vidya Cards
4. SME Debit Cards

Credit Cards:

1. India Card (Master Card)
2. Pensioners Credit Card
3. Gold Card (VISA)
4. Gold International (VISA)
5. Shatabdi Krishi Vikas Card (Visa)

Techno-Enabled Services:

1. ATM
2. BOI Star e-Pay-Payment of utility bills
3. DGFT online payments
4. ECS (Debit & Credit)
5. Internet Banking
6. E-Payment of Direct and Indirect Taxes
7. Online Fund Transfer
8. Online Booking of Railway & Airline Tickets
9. S.W.I.F.T
10. Star Cash Management
11. Star Share (e) Trade
12. Telebanking & SMS Banking
13. Star Sandesh On Line SMS based alerts for ATM Financial Transactions &
Internet Banking Funds Transfer
14. Customer Corner Provided on Banks Website for Customer Suggestion and
Grievance Redressal







2.2 - ORGANIZATION STRUCTURE

Chairman and Managing Director:

Smt. V. R. Iyer took over as Chairperson & Managing Director of the Bank w.e.f. 5th
November, 2012. Prior to this assignment, Smt. Iyer was Executive Director of Central Bank of India from
September 01, 2010 till she joined Bank of India.

Smt. Iyer (DOB 01.06.1955), post-graduate in Commerce with CAIIB, started her career in Union Bank of
India in 1975. Smt. Iyer, in her career span of 33 years, had good stint in branch banking having worked
in very large and extra large branches. She has extensive exposure in Credit Department, Credit
Monitoring Department and contributed significantly in setting up of Risk Management Department,
rolling out CBS, alternate channels and various other e-initiatives.

Smt. Iyer served as Deputy General Manager (Information Technology) during 2006-07 before getting
elevated as General Manager in January 2008 and was holding the portfolios of Information Technology
and Risk Management.

Smt. Iyer was elevated as Executive Director of Central Bank of India with effect from 01 September,
2010 where she looked after Credit, Treasury, Forex, IT, CBS, Risk Management and Inspection & Audit
portfolios.





Executive Director:

Shri B P Sharma, a Direct Recruit Manager of 1984 has taken over as Executive Director of
Bank of India with effect from 18th June, 2012. Shri Sharma, a Science Graduate with honors, a
Graduate of Law and a Master in Social Welfare was the General Manager at the Punjab National Bank.
He had started his career with Punjab National Bank as Manager, HRD on 27th August, 1984. He had
held several distinguished positions in the Banks hierarchy in a career spanning 28 years. He has
effectively discharged his responsibilities in the capacity of Deputy Zonal Manager, Zonal Manager and
General Manager. Shri Sharma has worked extensively throughout the country in the areas of Human
Resources, Operations & MSME

Shri R. Koteeswaran took over as Executive Director of the Bank of India w.e.f. 5th
August, 2013.

Prior to this assignment, Shri Koteeswaran was General Manager, Bank of Baroda from December 01,
2010 till he joined Bank of India.

Shri Koteeswaran joined Bank of Baroda in 1976; he worked in various branches in different centres,
mostly in credit. He was also heading Kisumu Branch in Kenya for 4 years. After returning from overseas
in 1999, he had worked in an Administrative (Zonal) Office for 3 years. He was elevated to Chief
Manager Cadre in 2002 and posted at Central IT Department of the Bank.

He also functioned as Data Centre Manager for 4 years from Nov, 2006 before becoming the Head of IT
& Projects Department in 2010 as General Manager. He also played a big role in creating the Data
Warehousing for the Bank. Besides he has gained rich experience in CRM, Resources Mobilisation,
Marketing, Wealth Management and Official Language Departments.

2.3 FUNCTIONING AND PROCESS

The Bank was founded in September 1906 as a private entity and was nationalised in July
1969. Now, Bank Of India, is a Body Corporate constituted under The Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970, with its Head Office at Star House,
Plot No.C-5, G Block, Bandra-Kurla Complex, Bandra East), Mumbai 400 051.

The Bank is doing the business of banking which means the accepting of deposits for the
purpose of lending or investment, of deposits of money from the public, repayable on demand
or otherwise, and withdrawal by cheque, draft, order or otherwise.
In additions to the business of banking, Bank of India is also engaged in other forms of
business as contemplated under Sec. 6 (1) of the Banking Regulation Act, 1949.
Deriving from this definition, Bank of India performs the following functions :
1. Accepting Deposits from public/others (Deposits)
2. Lending money to public (Loans)
3. Transferring money from one place to another (Remittances)
4. Acting as trustees
5. Keeping valuables in safe custody
6. Government business (such as payment of Pensions)




CHAPTER 3

BACKGROUND

OF

THE PROJECT














3.1 OBJECTIVE

To gauge credit scoring in BOI-SME Branch.
One of the important functions of banks is offering credit, besides accepting deposits.
However, offering credit is fill with fraud and risk. So before offering credit to an individual
or organization, their financial health must be analyzed. Credit should be disbursed only
after ascertaining satisfactory financial performance. Based on the financial health of the
individual or the organization, the banks assign credit ratings. These credit ratings are used to
decide whether to sanction credit or not and fix the interest rate.

3.2 GENERAL INFORMATIONS ON CREDIT/ADVANCES

Credit Policy of RBI:

RBI announces Credit Policy twice a year- One for Busy Season (October-March) and the
other for Slack Season (April-September). However, in the recently announced RBI Policy,
the RBI has decided to have a policy review in an interval of one-and-half months, in order
to have a firm grip on the implementation/execution of is various suggestions and its impact
on our economy. The Credit Policy for the busy season is usually announced in the month of
October while that of slack season is announced in the month of April every year. In the busy
season the demand for bank credit is comparatively higher than the slack season, as more
money is needed for the marketing and distribution of agricultural products.

Of late the share of agricultural credit is coming down compared to industrial credit (which is
not seasonal in nature) and therefore the need for announcing two separate policies is slowly
losing its relevance. Accordingly RBI has started announcing the credit policy once in a year
in the month of April followed by a Mid-term review in October.
Through its Credit Policy, RBI tries to:
(i) regulate money supply (M3) and thus inflation,
(ii) curb hoarding of essential goods & speculation,
(iii) make credit available to the deserving sectors at reasonable cost.

Priority Sector Finance:

Priority Sector constitutes certain sectors of the economy and sections of the society which
are crucial for the development of the economy. Banks are directed to provide adequate and
timely credit for all activities classified under priority sector.

Components of Priority Sector Finance:

1. Agriculture

(i) Direct Finance to Farmers for agriculture purposes:

a) Short Term Loans:
For raising crops.
Advances upto Rs. 10 lakh is provided to farmers.
Repayment period is within 36 months.
b) Medium and Long Term Loans:

All loans with repayment period of 36 months and above, given for agricultural purposes are
called Term Loans for agriculture. They fall into ten broad categories as given hereunder:
(1) Land development and reclamation: e.g. waste land development
(2) Minor irrigation: sinking of well, deepening of well, purchase of pump sets, etc.
(3) Farm mechanisation: purchase of tractors, power tillers etc and purchase of vehicles such
as Vans for farm supervision etc.
(4) Animal husbandry and Allied activities: Animal husbandry includes Dairy, Sheep rearing
etc and Allied activities includes Sericulture, Apiculture etc.
(5) Fisheries (Pisciculture):
(6) Plantation and Horticulture: Plantation includes traditional plantations like tea, rubber,
coconut etc and non-traditional plantations like medicinal plants. Horticulture includes
Pomeculture (growing of fruits), Floriculture (growing of flowers), and Olericulture (growing
of vegetables).
(7) Farm forestry: includes Sylviculture (growing of trees like Eucalyptus, Tamarind, Neem
etc.)
(8) Non-conventional sources of energy: biogas plants, wind mills etc.
(9) Storage and marketing facilities for the agriculturist: construction and running of
warehouses/ godowns/ cold storage for storing own produce of the agriculturist.
(10) Loans to agriculture graduates for setting up Agri Clinic and Agri Business Centres.
The Agri clinics provide consultancy services on agriculture and allied activities while Agri
Business Centres provide inputs and farm equipments on hire. The maximum project cost
allowed under this scheme is Rs. 10 lakh per individual and Rs. 50 lakh for a group of five or
more individuals.
(ii) Indirect Finance to Agriculture:
Finance given to agencies / organisations which supply certain inputs / services to farmers are
classified as indirect finance to agriculture. Following types of Finances are included under
this category:
a) Dealers of fertilizers, pesticides, seeds and other inputs like cattle feed/ poultry feed, etc.
availing credit limit upto Rs. 40 lacs.
b) Dealers of drip/ sprinkler irrigation system/ farm machinery which are located in rural/
semi urban areas availing credit limit upto Rs. 30 lacs.
c) Supplier of custom services in farm machinery, storage facility, plant protection services
and cooperative processing units. A custom service is one which maintains tractors/
bulldozers/threshers/ other implements for undertaking work from farmers on contract basis.
d) Loans to individuals/organisations who undertake spraying operations.
e) Loans to electricity boards for providing low tension connections for energisation of dug
wells.
f) Loans to Farmer Service Cooperative Society, Large Agricultural & Multipurpose Credit
Societies, Co-operative Banks, Co-operative Marketing Societies for on-lending to farmers.
g) Loans to small farmers/marginal farmers for purchase of shares from primary market
in sugar/cotton/spinning/ginnery mill/rice mill/oil seed and rice bran processing mills etc.
Finance can be given upto Rs. 6000/- per farmer.
h) Finance to commission agents (Arthias) to meet their fund requirement for supplying
inputs in credit to farmers.
i) Subscription to special bonds/deposits issued by (i) NABARD, for exclusively financing
agriculture or (ii) Rural Electrification Corporation (REC) and 50% of contribution to RRBs
in form of finance.
j) Loans to cooperative marketing society for marketing produce of their members.
k) Loans to state sponsored corporations for (i) on-lending to weaker sections, (ii) financing
institutions for distribution of fertilizers/pesticides/seeds etc. (iii) hire purchase schemes for
distribution of agricultural machinery/implements.
l) Loans to storage units, including cold storage units, which are designed to store agricultural
products, irrespective of their location would be treated as indirect finance to agriculture,
except when they are registered as SMEs.
m) Deposits made in Rural Infrastructure Development Fund in NABARD.

2. Small and Medium Enterprises:

(i) Direct Finance to SME:

Investments made by banks in securitised assets representing direct lending to SME sector
would be treated as their direct lending under priority sector provided the securitised loans
are originated by banks/FIs. For example village cottage industries and artisans.

(ii) Indirect Finance to SME:

Advances given to the following organisations will be classified as indirect finance:
a) Agencies which supply inputs to artisans/village cottage industries.
b) Agencies which procure and market finished goods produced by artisans and village &
cottage industries.
c) Govt. sponsored organisations/corporations which provide funds to the weaker sections in
priority sector, e.g., SC/ST Development Corporation.
d) Subscription to bonds issued by SIDBI, NSIC, SFCs, SIDCs.
e) Subscription to bonds issued by NABARD for financing exclusively to non-farm sector.
f) Finance to KVIC by consortium of banks for on-lending to Khadi & Village Industrial
Units.
g) Finance for Industrial Estates.
h) Finance to NBFCs/HUDCO/other financial intermediaries for on-lending to small sector
enterprises.

3. Others:

(i) Small Road & Water Transport Operators (SRTOs)
Advances to SRTOs owning not more than ten vehicles including the one proposed to be
financed. Advances of NBFCs for on-lending to SRTOs not owning more than 10 vehicles.
(ii) Retail Trade
All retail traders in essential commodities (Fair Price Shops) and Consumer Cooperative
stores irrespective of the amount of advance. And any other retail trade with credit limit not
exceeding Rs. 10 lacs. However finance to retail traders in fertilizer will be classified as
Indirect Finance to Agriculture and that in mineral oil will be classified as Small Business.
(iii) Small Business
Small business includes enterprises which provide any service other than professional
services and whose original cost of equipment does not exceed Rs. 20 lacs. Banks are free to
fix individual limits for working capital.
(iv) Professional and Self Employed Persons
Loans should be granted to professionals like Doctors, Chartered Accountants, Lawyers,
Engineers or any other person trained in any art/craft or skill.
(v) Housing
Direct housing loans for repair of houses are classified as priority sector finance.
Assistance given to Govt./non-governmental intermediary agencies for construction of houses
and also for slum clearance and rehabilitation of slum dwellers.
(vi) Education
Education loans upto Rs. 7.5 lakh for studies in India and upto Rs. 15 lakh for studies abroad
would be classified as priority sector advance. But loans granted to educational institutions
cannot be classified as priority sector finance.
(vii) Pure Consumption Loans
Pure consumption loans such as loans for Marriage ceremonies, Medical expenses, Birth
or funeral or religious or general consumption, Educational needs are classified as priority
sector finance.
(viii) Loans to Self Help Groups or Non-Government Organisations.
(ix) Advances to Software industries
(x) Advance to Food Processing Industries

TARGETS FOR PRIORITY SECTOR LENDING:

A. Domestic banks in public as well as private sector excluding RRBs:
1) Minimum 40% of the net bank credit should go to the priority sector.
2) Minimum 18% of the net bank credit should go for financing agriculture both direct
and indirect. Where a bank fails to achieve the sub-target of 18%, it is required to deposit the
shortfall amount subject to a maximum of 1.5% of its net bank credit with NABARD to be
credited to Rural Infrastructure Development Fund. This deposit will earn a floating rate of
interest which is 2% over Bank Rate payable at quarterly intervals.
3) Minimum 10% of the net bank credit should go for weaker sections.
4) Minimum 1% of the net bank credit outstanding at the end of the previous year should
be financed under DRI scheme.
5) Out of the total credit to be given to SME sector, 40% should be made available for
units with investments upto Rs. 5 lacs, 20% for units with investments between Rs. 5 lacs to
Rs. 25 lacs and balance for others.
6) All scheduled banks are required to allocate a minimum of 3% of their incremental
deposits of previous year for housing finance.
B. Foreign Banks operating in India:
Foreign banks operating in India should lend at least 32% of their net bank credit to priority
sector. For foreign banks, export credit will be considered as priority sector finance. Foreign
banks should provide 12% of their net bank to export sector and also same amount to SME
sector. Where a foreign bank fails to achieve the priority credit target, it will make good the
amount by placing it in one year deposit with SIDBI.
C. Urban Cooperative Banks:
60% of the net bank credit of UCBs should go to priority sector.
D. Regional Rural Banks:
RRBs are required to achieve priority sector lending target of 60% of their total advances
outstanding. At least 25% of the priority sector credit should be advanced to weaker sections.

PRIME LENDING RATE

Prime Lending Rate or simply PLR is the rate of interest which a bank charges on advances
given to its prime, i.e. excellent borrowers. The rates of interest charged to other borrowers
are generally linked to this rate. The Board of Directors of each bank fix the PLR. It can
change the same as & when required. Banks are free to charge interest even below the Prime
Le

For advances Rs.10 lacs and above in Large and Mid Corporate which will be effective from 01.05.2012 are
as under:

Rating Model Spread % over BPLR
Revised w.e.f.
01.05.2012
Nil 14.75%
SBS 1-3 MS 1 to MS 2 1.00 15.75%
SBS 4-6 MS 3 to MS 4 2.00 16.75%
SBS 7 MS 5 & MS 6 3.25 18.00%
SBS 8-10 MS 7 to MS10 3.50 18.25%


II. Limits above Rs.2 lakhs and upto Rs.10 lakhs

The rates prescribed by respective SBU to be followed.
In case of advances which are not covered under any other 1% over BPLR i.e. SBUs but falling under C&IC Sector,
rate to be quoted is presently 15.75%.
In case of various other loans, the rates given in following pages may be followed.

III. Limits Rs.10 lakhs and above (linked to Credit Rating of the borrower) :

Interest rates applicable to commercial advances for limits Rs.10 lakhs and above for (i) working capital including
WCDL facilities and Short Term loans upto 1 year and (ii) Term Loans above 1 year are given below :-
Rating Model Spread
Rate of Interest (%) p.a.
Working Capital including WCDL &
Short Term Loans (less than 1 year)
Term Loans above 1 year
Prior to
01.10.2000 *
On or after
01.10.2000
Exist. Rev. Exist. Rev. Exist. Rev.
- Prime -- 15.00 14.75 15.00 14.75 15.00 14.75
SBS1-
3
MS1 to
MS2
1.00 16.00 15.75 16.00 15.75 16.00 15.75
SBS4-
6
MS3 to
MS4
2.00 17.00 16.75 17.00 16.75 17.00 16.75
SBS 7
MS5 &
MS6
3.25 18.25 18.00 18.25 18.00 18.25 18.00
SBS 8-
10
MS7 to
MS10
3.50 18.50 18.25 18.50 18.25 18.50 18.25


* Term loans (3 years and above) granted prior to 1.10.2000 would attract the same spreads over BPLR as
contracted i.e. 1.15%, 2.30% and 3.50%.


V. Trade Finance (For select customers/transactions)

Card Rate
i.
Bills backed by LCs of Banks within the
exposure limit given by Risk Mgmt Dept,
HO
Existing Revised
Less than
10crores
10 crores
and
above
Less than
10crores
10 crores
and
above

Not exceeding 90 days
11.25 11.00 11.25 11.00

91 days to 180 days
11.50 11.25 11.50 11.25
Ii
Bills drawn by customers whose rating is
LC1 to LC2/SBS 1-3


Not exceeding 90 days
14.75% 14.50%

91 days to 180 days
15.25% 15.00%
iii
Customers with risk rating LC3 to
LC4/SBS 4-6 and above for bills drawn on
corporates and PSUs (Br. Cir. Nos.98/157
dated 01/11.2004)


Not exceeding 90 days
15.00% 14.75%

91 days to 180 days
15.50% 15.25%


nding Rate (i.e. Sub PLR).14.50% p.a





FIXED RATE & FLOATING RATE OF INTEREST

Banks are permitted by the RBI to charge interest on term loan on the basis of fixed rate or
floating rate. In case of fixed rate, the rate of interest remains same throughout the tenor of
the loan while in case of floating rate, the rate of interest is fixed in relation to an anchor
rate & is changed as & when there is a change in the anchor rate at predetermined intervals.
Accordingly many banks are charging floating rate of interest on Housing Loans & other
term loans.

CREDIT RATING OF BORROWERS & INTEREST RATES

With respect to advances where rate of interest is deregulated, banks are required to stipulate
the rate of interest depending upon the credit rating of the borrower. The credit rating of the
borrower is to be done by the financing bank itself.

Rating of a borrower is done through a score sheet containing different parameters mostly
relating to financial disciplines like (i) Regularity in submission of financial statement, (ii)
Regularity in submission of stock statement, (iii) Maintenance of Net Working Capital, (iv)
Maintenance of current ratio, (v) Timely payment of interest/instalment etc. Depending
upon degree of compliance/non-compliance each parameter is awarded certain points &
the average score is found out by dividing the total score by total parameters taken into
consideration. Depending upon the average score the borrower is rated on a ten point scale
and is assigned rating like A+, A, B+, B, C etc. The rating technique and symbols vary from
bank to bank.

Top rated borrowers are charged Prime Lending Rate while lower rated borrowers are
charged progressively higher spreads on the principle higher the risk higher is the rate of
interest.

The credit rating assigned to a borrower is reviewed every year at the time of review of
account & interest is charged as per the new rating.

3.3 METHODS OF CREDIT APPRAISAL

3.3.1 - CREDIT APPRAISAL OF MSMEs IN BANK OF INDIA
MSME

MSME stands for Micro, Small and Medium Enterprises and are companies whose turnover
falls below a certain limits
.
Enterprises classified broadly into:

i) Enterprises engaged in the manufacture/production of goods pertaining to any industry &
ii) Enterprises engaged in providing/rendering of services.


Manufacturing Enterprises:
Defined in terms of investment in plant and machinery (excluding land & buildings) and
further classified into:

SMALL & MEDIUM ENTERPRISES STRATEGIC BUSINESS UNIT

All the interest rates are linked to Base Rate (floating) which is 10.20%
w.e.f. 20.01..2014. Please note that irrespective of the category of the
borrower (i.e. micro, small, medium and other non-regulatory / Sankalp
SME) the rate of interest will be as per the limit proposed and credit
rating assigned. The applicable
rating models are :

Sr No
Limits (Rs.)
Applicable rating Model
Presently in force
From To
1 1 < 10 Lakh No rating
2 10 Lakh < 5 Crore SBS
3 5 Crore <30 Crore MS
4 30 Crore and above HLC


Please also note importantly that Tenor Premium is to be added to the interest rates for all term loans with limits of
above Rs.10 lacs with repayment period exceeding 1 year (door to door).

REGULATORY MSME ( As per MSMED Act 2006) will include the followings:

Category of Amount of Original Investment
Enterprise
Investment in Plant &
Machinery in case of units
engaged in Manufacturing /
preservation of goods
(including Processing Units)
Investment in Equipment in case of units
engaged in providing /rendering services
Micro
Enterprise
Not to exceed Rs.25 Lakh Not to exceed Rs.10 Lakh
Small
Enterprise
More than Rs.25 Lakh but not
exceeding Rs.5 Crores
More than Rs.10 Lakh but not exceeding Rs.2
Crore
Medium
Enterprise
More than Rs.5 Crore but not
exceeding Rs.10 Crores
More than Rs.2 Crore but not exceeding Rs.5
Crore

According to Ministry of Micro, Small and Medium Enterprises in India, the Micro and
Small Enterprises (MSEs) sector plays a pivotal role in the overall industrial economy of
the country. It is estimated that in terms of value, the sector accounts for about 39% of the
manufacturing output and around 33% of the total export of the country. Further, in recent
years the MSE sector has consistently registered higher growth rate compared to the overall
industrial sector. The major advantage of the sector is its employment potential at low capital
cost. As per available statistics, this sector employs an estimated 31 million persons spread
over 12.8 million enterprises and the labour intensity in the MSE sector is estimated to be
almost 4 times higher than the large enterprises.

The Importance of Micro, Small and Medium Enterprises (MSMEs) in any economy cannot
be overlooked as they play a key role in industrialization of a developing country like India.
They have unique features:-
Smaller in size
Development of decentralised sector
More employment opportunities
Comparatively high labour-capital ratio
Need a shorter gestation period
Focus on relatively smaller markets
Need lower investments
Ensure a more equitable distribution of national income
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Effective utilisation of locally available resources and thus help in the growth of local
economy, and
Stimulate the growth of industrial entrepreneurship.
However the following are the issues of MSME financing:
Emphasis to preserve narrow profit margins makes the MSMEs myopic about the
innovative improvements to their product and processes and to capture new markets.
They are unable to compete with big players in terms of product quality, range of
products, marketing abilities and cost.
Absence of a wide range of Financing and other services to raise money and sustain
the business.
Absence of Infrastructure, Quality labour, Business acumen and limited options /
opportunities to widen the business.
Poor IT and Knowledge Infrastructure.
To overcome all these difficulties, Indian MSMEs not only need the policy support from the
Government but also need institutional support to fund modernization and technology upgradation,
infrastructure support and adequate working capital finance.
The Indian MSME market seems to be emerging a promising hunting ground for banks and
financial institutions because it is poised for tremendous growth. As the access of MSMEs
to capital markets is very limited, they largely depend on borrowed funds from banks and
financial institutions. In majority of the economies, while the investment credit to MSMEs
was being provided by financial institutions, commercial banks extended working capital.
In the recent past, with growing demand for universal banking services, the term loan and
working capital are becoming available from the same source. Besides the traditional needs
of finance for asset creation and working capital, the changing global environment has
generated demand for introduction of new financial and support services by MSMEs.
Companies that intend to seek credit facilities approach the bank. Primarily, credit is required
for following purposes:-

1. Working capital finance
2. Term loan for mega projects

1. Working Capital Finance

Every business needs funds for two purposes- for its establishment and to carry out its day to
day operations. Long term funds are required to create production facilities through purchase
of fixed assets such as plant and machinery, land, building, furniture etc.
Working capital refers to that part of firms capital which is required for financing short term
or current assets such as cash, marketable securities, debtors, and inventories. In other words
working capital is the amount of funds necessary to cover the cost of operating the enterprise.
It refers to funds which are used during an accounting period to generate a current income of
a type which is consistent with major purpose of a firm existence.
Need for working capital
The prime objective of the company is to obtain maximum profit thought the business.
The amount of profit largely depends upon the magnitude of sales. However the sale does
not convert into cash instantaneously. There is always a time gap between sale of goods
and receipt of cash. The time gap between the sales and their actual realization in cash is
technically termed as operating cycle. Additional capital required to have uninterrupted
business operations, and the amount will be locked up in the current assets. Regular
availability of adequate working capital is inevitable for sustained business operations. If the
proper fund is not provided for the purpose, the business operations will be effected.
Every business needs some amount of working capital. It is needed for following purposes-


incur day to day expenses and overhead costs such as fuel, power, and office
expenses etc.

Component of Working Capital
There are two of the major following components of the Working Capital:
Current Assets:
Current assets are those assets which can be converted into cash in the normal course of
business within a short period- say a maximum of one year. They are also called floating or
circulating assets because they cannot be put to constant use. They are meant for resale or
produced for the purpose of sale i.e., converting them into cash. In brief, the list of current
assets comprises of:
Cash in hand and bank balances;
Bills receivables;
Sundry debtors (less provision for bad debts);
Short-term loans and advances;
Inventories of stocks as:
Raw- material,
Work-in-progress,
Stores and spares,
Finished goods.
Temporary Investments of surplus funds;
Investments held for short term and easily marketable securities:
Prepaid Expense;
Accrued Incomes.

Current Liabilities:

Current liabilities are those liabilities which are intended to be paid in the ordinary course of
business within a short period of normally one accounting year out of the current assets or the
income of the business. Such as:
Bills Payable;
Sundry creditors or accounts payable;
Accrued or outstanding Expenses;
Short-term loan, advances and deposits;
Dividends Payable;
Bank overdrafts;
Provision for taxation.

Working Capital Cycle

The working capital cycle is also known as the operating cycle of working capital. This
concept is used on the continuity of flow of funds through business operation. This flow
of value is caused by different operational activities during a given period of time. The
operational activities of an organization may comprise:
Purchase of raw materials,
Conversion of raw materials into finished products,
Sale of finished products, and
Realization of accounts receivable.
Material cost is partly covered by trade credit from suppliers and successive operational
activities also involve cash flow. If the flow continues without any interruption, operational
activities of the company will also continue smoothly. Movements of cash through the above
process are called the circular flow of cash. The period required to complete this flow is
called the operating period or the operating cycle.
To estimate the working capital requirement, the number of operating cycles in a year
is to be calculated. This is calculated by dividing the number of days in a year by the length
of the cycle. Total operating expenses of a year divided by the number of operating cycles in
that year is the working capital required.

ASSESSEMENT OF WORKING CAPITAL

When a company approaches for a Working Capital Finance then the Bank of India follows
the following steps for the assessment of its working capital:
1. Estimating the projected level of operation or Ascertaining the reasonableness of
projected level of operation.
2. Estimating the reasonable level of Total Current Assets required for achieving the
projected level of operation.
3. Estimating the reasonable level of other current liabilities in the corresponding period
and then finding out the working capital gap.
4. Determining the reasonable level of Net Working Capital required to be brought in by
the unit and then finding the MPBF.
5. Margin Requirement and Fixation of limits on the basis of available chargeable
Current Assets.

STEP- 1

ESTIMATING THE PROJECTED LEVEL OF OPERATION OR ASCERTAINING
THE REASONABLENESS OF PROJECTED LEVEL OF OPERATION

Sanction of the credit limit is always for the future requirement. The borrower has to
submit the projected sales figure expected to be achieved during the relevant year.
For advances of Rs. 10 lacs and above the borrower is required to submit the financial
data in CMA format. He gives in CMA Form II, the sales figure during the last two
years, estimated sales figure for the current year and the projected sales figure for the
following year.
The Bank makes sure whether the sales projection is realistic or not. For finding
out reasonableness of the projection the Bank takes the following points into
consideration:
From the Sales figure submitted, the Bank finds out the percentage of rise or fall
in Net Sales as compared to previous years and ascertains that the projection is in
line with the past trend. If there is no relationship between projection and the past
trend, the genuineness of assumption on which sales is projected must be cross
checked and only the realistic figure is to be calculated.
While finalising sales figure the factors to be kept in mind are:
(a) Available capacity and capacity utilization,
(b) Marketability of the product- competition and the marketing strength of the
unit,
(c) Availability of critical raw material,
(d) Availability of power, etc.
In case of new units, the Bank ascertains the reasonableness of projection in the
light of data available for marketability of product, the performance units and
installed capacity of the unit.
After finalising the projected level of sale, the Bank cross checks whether the
projections made in operating statement (given in CMA form II) for raw material
consumption, cost of production, cost of sale are reasonable. This is generally done
by comparing the trend of cost of sales to sales and percentage of Raw Material
consumption and other manufacturing expenses to the cost of production.

STEP- 2

ESTIMATING THE REASONABLE LEVEL OF TOTAL CURRENT ASSETS
REQUIRED FOR ACHIEVING THE PROJECTED LEVEL OF OPERATION

After finalising the projected sale, the Bank ascertains the level of Working Capital
which is required to be maintained for achieving this state.
For it the Bank first calculates the Holding Period of Raw Material, WIP, Finished
Goods and Receivables.
(1) Period of Holding of Raw Material
It is the number of months of raw material consumption a unit usually keeps in stock.
It is calculated by the following formula-
(2) Holding Period of W.I.P.
It is expressed with reference to Cost of Production.
(3) Holding Period of Finished Goods
It is calculated with reference to Cost of Sales.
(4) Holding Period of Receivables/ Debt Collection Period
It is calculated with reference to Credit Sales or Sales figure (when credit sales figure
is not available).
Once the Holding Period is accepted, the Bank refers to the projected operating
statement and find out the following figures after ascertaining that they are realistic.
1. Projected figures for Raw Material Consumption
2. Projected figures for Cost of Production
3. Projected figures for Cost of Sales
4. Projected figures for Sales
Now,

Then, Total Current Assets is calculated by adding projected value of Raw Material, Spares,
Work-in-Process, Finished Goods, Receivables and Other Current Assets.

STEP- 3

ESTIMATING THE REASONABLE LEVEL OF OTHER CURRENT LIABILITIES
IN THE CORRESPONDING PERIOD AND THEN FINDING OUT THE WORKING
CAPITAL GAP

Sundry Creditors and Other current liabilities are a source of financing working
capital. While assessing the maximum permissible bank finance, the Bank make
certain that to what extent this source of finance was available in the past and whether
in the projections same trend is reflected or not. Number of days credit enjoyed by the
unit can be calculated by using the following formula:
Apart from Sundry Creditors other items in Other current liabilities should be
projected at reasonable level depending upon the past trend.
Then the Working Capital Gap is found out by deducting projected level of other
current liabilities from projected level of Total Current Assets.

WCG = TCA OCL

STEP- 4

DETERMINING THE REASONABLE LEVEL OF NET WORKING CAPITAL
REQUIRED TO BE BROUGHT IN BY THE UNIT AND THEN FINDING THE
MPBF

The Bank does not finance the entire working gap.

As per Tandon committee recommendations, the borrower should bring NWC which
is equal to or more than 25% of the working capital gap (1st method of lending). In
case he is required to be fitted in 2nd method of lending he should bring NWC equal
to 25% of the Total Current Assets.
Where the NWC already available in the business is more than the Tandon Committee
norms the borrower must continue to maintain the same. In no case the borrower
is allowed to withdraw the NWC or use the same for acquisition of fixed assets or
investment in sister concerns, without specific approval of the Bank.
MPBF is lower of the following two
(i) WCG NWC as required by the Tandon Committee
(ii) WCG NWC, available in the business

STEP- 5

MARGIN REQUIREMENT AND FIXATION OF LIMITS ON THE BASIS OF
AVAILABLE CHARGEABLE CURRENT ASSETS

After determining the MPBF, the various limits (Bills, Packing Credit, Working
Capital, Term Loan) are determined depending on the available chargeable current
assets less suitable margin.
Tendon committee has suggested three methods of lending. Out of these the Reserve Bank
of India accepted only two. These methods of lending are used for calculating Maximum
Permissible Bank Finance (MPBF)
.
(1) First Method Of Lending:


As per Method I, the borrower is required to bring minimum NWC to the extent of the 25%
of Working Capital Gap. The balance which is maximum 75% of the working capital gap will
be the Maximum Permissible Bank Finance. This approach was considered suitable only for
very small borrowers i.e. where the requirements of credit were less than Rs.10 lacs.



(2) Second Method Of Lending:


Under second method, the borrower is required to bring minimum NWC to the extent of 25%
of the Total Current Assets & the balance will be MPBF. RBI stipulated that the working
capital needs of all borrowers enjoying fund based credit facilities of more than Rs. 10 lacs
should be appraised (calculated) under this method.


Difference between the two methods:

These two methods of lending envisage different levels of contribution from long term funds
(NWC) by the borrowing unit with an objective to slowly reduce the dependence on bank
borrowing. The NWC contribution in 2nd method is higher compared to 1st method. The
Maximum Permissible Bank Finance in 2nd method is lower compared to 1st method.





ASSESSMENT OF WORKING CAPITAL AS PER NAYAK COMMITTEE
(TURNOVER METHOD):

Nayak Committee recommended a new method of assessment of working capital. This
method was initially made applicable for all units availing working capital limits upto Rs. 50
lacs. Subsequently this method of lending is made applicable to all small scale units availing
fund based working capital limits upto Rs. 5 crore from the banking system, and other units
availing the same upto Rs. 2 crore.

Method of Assessment:

As per this method, minimum working capital requirement of such units should be
computed at 25% of the projected annual turnover.
The margin should be calculated as equal to 5% of the projected turnover.
The minimum working capital finance will therefore be calculated as equal to 20% of
the projected turnover.

Points to Not:

In conventional methods, the bank calculates Maximum Permissible Bank Finance
while in this method the bank calculates the minimum finance. The bank is free to
finance any amount above this minimum limit.
The working capital requirement of a unit basically depends upon two important
factors namely (i) projected turnover & (ii) length of working capital cycle.
By stipulating 25% of the annual turnover as the working capital requirement, the
method assumes that the length of the working capital cycle would be minimum three
months (i.e., 25% of one year).
The margin requirement is stipulated to be 5% of the projected turnover. In other
words the margin requirement is 1/5 or 20% of the total working capital requirement
of the unit.
While applying this method, the bank is very careful in accepting the projected sale.
The projected sale must be realistic and should be in conformity with the past trend.

PROCEDURE OF ASSESSMENT

The assessment of working capital should be done both on traditional method (which
depends upon finding out total current asset build-up) and the new method (which is
on turnover basis).
In case the limits determined as per the former method comes to less than 20% of the
turnover, the assessment should be thoroughly re-examined.
In special circumstances if it is justified, working capital finance can also be fixed
at a level less than 20% of the turnover. However, in such a case the consent of the
borrower should be obtained in writing.
Where the existing level of Net Working Capital is more than 5% of the turnover, the
available NWC should be taken into consideration & accordingly the limits can be
fixed at a level lower than 20% of the projected turnover.
In case of seasonal industries, peak level and non peak level limits should be fixed
with reference to peak and non peak season projected turnover.
Other current liabilities and sundry creditors will be treated in the same manner as is
the case with traditional method.
Fixation of limits will be done with reference to build-up current assets as assessed
under traditional method.
Drawings in account will be regulated on the basis of statement given for actual inventory
and receivable.

2. Term Loan Finance

Term loan is sanctioned for acquiring fixed assets, i.e. land, building, machinery, vehicles,
etc. Term loan is repayable in instalments spread over three to ten years and its repayment is
out of profit.

General Guidelines for Sanction of Term Loan by Bank of India:

- The credit exposure limit of the bank towards projects promoted by a single borrower
should not exceed 15% of the Capital Fund of the bank (additional 5% is permitted for
infrastructure projects) and to that of a group not exceed 40% of the banks capital fund.
- In case of projects undertaken by public sector units, term loan can be sanctioned only
if the unit is a company formed under the Companies Act or a corporation formed under a
statute.
- Bank extends financial assistance for purchase of second-hand assets as per the policy
framed by the bank concerned in this regard.
- Bank prefers to sanction term loans which are eligible for refinance.
- To be eligible for refinance, the term loan should be given as per the norms prescribed
by the Refinancing Institutions like SIDBI, NABARD, etc. and the industry should not be
one which is classified under Negative List.
Generally the entrepreneur submits a project report prepared by SISI/TCOs/Approved
Consultants. The appraising official cross checks the reliability of the assumptions made in
the project report and if necessary recalculates the projections on fresh assumptions made

.

ANALYSIS OF TERM LOAN

While sanctioning Term Loans to Industries, a detailed analysis is made on the following
aspects of a project:
(1) Managerial Competence
(2) Technical Feasibility
(3) Commercial Viability
(4) Financial Viability


(1) Managerial Competence


A thorough study need to be made on the capability of the entrepreneurs in implementing and
managing the project by examining some points as hereunder:
(i) Past experience,
(ii) Qualification,
(iii) Technical and Managerial Skill,
(iv) Entrepreneurial Skills (i.e. Ambition, Tenacity, Risk taking Aptitude, etc.)
(v) Character (Honesty, Integrity)
(vi) Capability to arrange promoters contribution/margin and other funds in contingencies.



(2) Technical Feasibility

Study of technical feasibility involves the study of all aspects relevant to production of
finished goods of proper quality. Points under this head are as hereunder:
(i) Licenses, permits required to start the project and their availability.
(ii) Location of the project vis a vis the availability of raw material, utilities, (power, steam,
water, fuel, etc.) and transport.
(iii) Product and Process : (The manufacturing process adopted, vis a vis the modern
technology available and the standing of the supplier of technology and his stake (as
32
collaborator, shareholder, etc.) is to be examined. Wherever feasible, performance
guarantee may be insisted upon from the suppliers of technology).
(iv) Plant and Machinery : (Suitability, Capacity, Standing of Suppliers, Availability of
performance guarantee and cost etc. are to be examined).
(v) Raw Material and Labour Availability : (Quality, Cost, Regularity in Supply are to be
studied).



(3) Commercial Viability

The bank examines whether the goods can be sold in quantity and price as projected
by entrepreneur. Unless the products are sold at or near to the projected level the expected
cash flow will suffer and the unit would become sick. To avoid such an eventuality, a
thorough examination is to be made on the following points:
(i) The present and futuristic trend of demand for the product.
(ii) The level of competition from similar products and substitutes and the strength of the
competitors.
(iii) The capability of the unit to penetrate the market to gain and retain a comfortable market
share.
(iv) The present stage in the life cycle of the product.
(v) Price of the product vis a vis the substitutes and price elasticity of demand.

(4) Financial Viability

Study of Financial Viability involves the study of the following aspects:
(i) Whether sufficient finance at reasonable cost is available to execute the project (cost of
project and means of finance).
(a) Cost of the project:
It includes all the expenditures required to bring the project into the stage of
commercial production and consists of the following major components:
1. Land and Site Development
2. Building
3. Plant & Machinery
4. Miscellaneous Fixed Assets (Electric installation, Vehicles, Furniture, etc)
5. Technical Know How (Cost of technology, Patent, etc)
6. Preliminary Expenses (expenses in formation of company, public issue, law charge
etc.)
7. Pre-operative expenses (Salary, Interest on Term Loan, etc. before commencement
of production)
8. Margin on Working Capital (as per second method of lending)
9. Provision for contingencies (unforeseen expenditures)
(b) Means of Finance:
Sources from which cost of project are funded are: (i) Capital (ii) Surplus, for existing
units (iii) Quasi Equities (iv) Term Credits (v) Leasing.
The main points to be examined from means of finance are-
1. Whether the means of finance is sufficient compared to the cost of project?
2. What is average cost of finance and how it compares with the return from the
project?
3. What is Debt Equity Ratio? Is it per IDBI/SIDBI requirement? Or is it satisfactory?
4. What is Promoters Contribution? Is it as per IDBI/SIDBI norms or is it
satisfactory?
(ii) Whether sufficient profit will be available to service the creditors and share holders
(Projected Profitability Statement and Funds Flow Statement).

Projected Profitability Statement is to be prepared for all the years covering the
repayment period of the term loan.
The starting point for preparing a projected profitability statement is the estimation of
sales which is based on demand forecast.
Then capacity utilisation is calculated. It should be 40% to 50% during the initial
years and it should increase yearly to reach around 75% to 80%.
Then amount of sale should be calculated.
All the costs incurred are determined. Raw material cost is calculated at present actual
cost.
Wages are calculated. It should be increased 5% to 10% per year.
Repair and maintenance should be 2% of machinery cost.
Other costs like Insurance, Rent etc should be realistically projected for the first year
and then increase by 5% to 10% every year.
Depreciation should be as per actual calculation.
Now Profit before tax and after tax is calculated.
(iii) Whether sufficient funds/cash will be available to repay term loan instalment (Debt
Service Coverage Ratio and Projected Cash Flow).
After ascertaining the profit, the next step is to calculate the repaying capacity of the
unit. This is done by calculating DSCR which is given as:
Where lease rental are payable by the unit, it should also be added to the numerator and
denominator for calculating DSCR. It is calculated for each year.
The ideal ratio for DSCR is 2:1
DSCR helps to determine the length of the moratorium period, the repayment period and
the amount of instalment.
Where DSCR is low, the repayment period can be extended. Conversely, if the DSCR is
high the repayment period can be reduced.
In case the DSCR is very low, even after the extending the repayment period, the
proposal should not be considered for finance.
The repayment period and instalments should be linked to future cash accrual of a unit.
(iv) Whether the Break-even point and the margin of safety are satisfactory.
Break-even point is the amount of sales at which a unit makes no profit or no loss. In
other words it is the level of sale at which sales revenue is equal to the cost of units sold.
A unit can earn profit only if its level of sales is above the break-even point. A unit with
comparatively low BEP is generally preferred for finance.
The difference between Projected Sales and BEP sale is known as Margin of Safety. A
unit a Higher Margin of Safety is generally preferred for finance.
What will be the position of the company in future years (study of Projected Balance Sheets
for the years covering the currency of term loan).



3.3.2 INTRODUCTION TO PERSONAL LOANS


In personal loan the risk is assessed on the basis of income level of the borrower. It
should be made certain that after repayment of the EMI at least 40% income should
remain with the borrower.
For salaried employee it is their annual salary, and for professional and the business
persons it is their annual income or profit.
Personal loan is given mainly for the personal use of the borrower. It was initially also
known as Consumer Loan, as it is sanctioned for the use of consumer products, such
as Car Loan, Home Loan, etc.
Personal Loan is generally repaid within 3 years. If a borrower takes more time than
the stipulated period, in that case the borrower is considered Defaulter, and a Penal
Interest is charged to him.
Bank of India also provides various types of retail credit, some of which are briefly discussed
here:







1. Star Education Loan


Target group Educational Institutions viz., Universities , Colleges , Schools
Eligibility 1. The institutions must have got necessary approval from Government /
Government agencies for running the educational institution
2. They should submit 3 years audited financial statements
3. They should be profit making for continuous 2 years.
4. New and upcoming educational institutions can also be considered in
which projections, both financial and non-financial, must be reasonable
and justifiable.
5. Entry level credit rating is SBS 5. No deviation to be allowed.
Purpose 1. Construction/ Renovation / Repair of building. Approval for
construction/addition/alteration from all the concerned authorities must be
in place for considering the credit facility.
2. Purchase of Computer, lab equipment, Furniture & Fixtures, books etc
Nature of facility Term Loan
Quantum of Loan Minimum Rs.10 lacs and Maximum Rs.500 lacs
Repayment Term Loan to be repaid in maximum 8 years inclusive of initial moratorium
of 12 to 18 months. Periodicity of instalment to be determined on the basis
of cash flow
Appraisal of loan The proponent should have sufficient cash flow to service both instalment
and interest.
DSCR should be minimum 1.25.
Margin Minimum 20%
Rate of Interest As per prevailing rate of interest structure in terms of HOBC:104/94 dt. 15-
11-2010
Processing Fee, Documentation
charges etc
For accounts falling within
regulatory definition of
MSME : In terms of HOBC :
102/218 dt. 20-03-2009.
For accounts not falling
within regulatory definition
of MSME but within the new
definition of SME : In terms
of HOBC: 102/119 dt.19-09-
2008.
Security Primary :
i.) Hypothecation of assets, if loan is considered for machineries /
equipments.
ii.) Mortgage of land & building over which construction is proposed
Collateral :
Suitable collateral to be obtained so that minimum Asset Cover of 1.50 is
available. Guarantee of key person/promoter/trustee must be taken.
Insurance Assets charged to the Bank to be comprehensively insured covering
various risks including civil commotions and riots. The policies should be
renewed from time to time and copy retained on branch record. Banks
interest to be got noted in the insurance policy. Separate insurance policy
to be obtained for the mortgaged property.
Due Diligence The bank will conduct its own due diligence (including pre-sanction visit).
Sanctioning Authority As per extant delegation of power
Documentation 1. IFD 10 where fixed assets are charged to the Bank
2. IFD 1 where only mortgage is available
3. L-516 4. OD-19
4 where guarantee is proposed
5. All other supportive documents as per extant guidelines
Authorized branches All branches of the Bank.

2. Star Home Loan
Eligibility Salaried employees, Professionals, Self-employed persons.
Requests are also considered from NRIs, PIOs, HUF, and Prop.
Firm, Partnership firms and corporate
Purpose To purchase/construct house/flat
To renovate/extend/repair existing house/flat.
To purchase a plot of land for construction of house
Take over of home loan from other banks/FIs- subject to
conditions .
Quantum of Loan
For construction/purchase of a house/flat-Rs.300 Lacs (Rs.500 Lacs in major metros
viz. Mumbai, Kolkata, New Delhi and Chennai)
Repairs/renovation/extension to house/flat Rs.50 lacs
Purchase of a plot - Rs.100 lacs
Loan for purchase of household articles along with home
Loan for furnishing the house/flat @15% of Home Loan
amount Max. Rs. 5.00 lacs is offered under Secured
Personal Loan with same Rate of Interest as applicable
under Home Loan with maximum repayment period of 10
years including moratorium period, if any.
Note: Minimum Home Loan :- For Metro/Urban Centres :-Rs.
1 Lac
Processing charges / Other
expenses

FOR INDIVIDUALS
Loan Limit Charges- One Time
(inclusive of ST)
For All Loan amounts @0.25% of loan amount
Min.Rs.1, 000 and Max.
Rs.20,000/-

For Partnership firms & Corporate Borrowers Processing
charges will be double that of individuals.

For Rural areas Processing charges will be 75% that of
applicable to individuals in respect of loans availed by
borrowers from rural areas from the Rural Branches. Legal
Expenses/Valuation Charges/Stamp Paper Charges etc., At
actuals.
Margin
*% on pure cost of the
house excluding stamp
duty, registration ,
documentation etc.
For 1st
House/Flat
For Loan
upto Rs.20
Lacs
For Loan
over Rs 20
lacs - up to
Rs.75 Lacs:
For Loan
above Rs.75
Lacs:
15% 20% 25%
a) For 2nd or 25%
Subsequent
Home
Loan/House/Flat
b) Where
reimbursement
of loan is
considered- 1st
or 2nd
house/loan

Repayment(can be
customized)
Highly flexible - maximum 30 yrs. including moratorium
period upto 36 months (max.) in monthly installments,
including Banks approved projects. Loan to be normally
repaid before date of retirement in case of salaried persons and
before attaining 70 years of age in case of others. Repayment
upto 70 years also allowed to salaried employees having
assured post retirement income
Eligible Quantum of
Loan/ EMI
Calculation of quantum of loan is related to Income/repayment
capacity of proponent/borrower
Salaried Employees : 72 times of gross monthly salary or 6 times
of gross annual income based on I-T
Returns.
Self-employed/ Professionals etc. 6 times of Gross annual income based on I-
T Returns
HUF/Proprietorship
/Partnership Firm/ Company
6 times of cash accruals (PAT+
Depreciation) as per Balance Sheet/P&L
Account

In case of Individuals

Net Take Home pay(NTH)/income (net of all deductions
including EMI of Proposed loan) is stipulated as under :-

i. Gross Monthly Income up to Rs.1 Lacs NTH Minimum
40%
ii. Gross Monthly Income over Rs.1 Lac up to Rs. 5 Lacs
NTH Minimum 30%
iii. Gross Monthly Income over Rs.5 Lacs NTH Minimum
25%

In case of HUF/Proprietorship/ Partnership firm/Company:
DSCR should be minimum 1.5.
Rate of Interest (Floating
ROI- linked banks base rate ,
p.a. at monthly rests)

Up to Rs.75
lacs
Over Rs.75
lacs
Floating Category
Base Rate
0.25 % over Base
Rate
Up to 30 years

Note:
Fixed Rate of Interest Not
Offered
10.20 10.45

Security Mortgage/Equitable Mortgage (1st charge) on land/flat/house.
Third Party guarantee (if mortgage could not be created before
or at the time of disbursement).
Special Features Free Personal Accident Insurance cover for the borrower
(covering accidental death as well as permanent total
disablement) as per terms of insurance policy covering loan
outstanding as on the date of accident(Renewal at the
discretion of the Bank).
Life Insurance cover to housing loan borrowers , at
affordable premium against risk of death during tenure of
loan under Group Insurance Scheme in tie up with Star
Union Dai-Ichi Insurance Co. Ltd. at borrowers own
expenses & option.
Loan furnishing the house/flat at a rate of interest as
applicable to housing loan under the scheme
Other Attractive
Features
Interest on Daily Reducing Balance Basis
No Pre-Payment Charges on Floating Rate Loans
Facility for step up/ step down EMIs
Inclusion of notional rental income in case of 2nd House
and also Employees staying in Staff Quarters;
Inclusion of Income of Close relatives for enhanced loan
Tax Benefit on Interest and Installments repaid in Home
Loans
Facility for 100% loan irrespective of stage of construction
OR Bridge Loan subject to conditions:

RATING EXERCISE: The proponent will be eligible for loan subject to obtention of minimum marks or
minimum entry level norm fixed by the bank

3. Star Auto express

Target group All existing SME units, as per new definition, run by Individuals, Proprietorship /
Partnership firms, Limited Company, Trust, Society
Eligibility The unit / borrower should have sufficient net worth/source of funds to pay for
the margin and initial recurring expenses. Conduct of the existing account must
have been satisfactory.
Entry level credit rating should be SBS 5. No deviations to be allowed in entry
level norms.
Purpose To purchase transport vehicles for delivering their products / Services.
Educational institutions also eligible for transport vehicles for providing
transportation services to students / faculty / staff. Only new vehicles will be
considered. Second hand vehicles not permitted under the scheme.
Items to be financed Chassis + Body building costs + registration , insurance , road tax, accessories
AMC etc.
Nature of facility Term Loan
Repayment To be repaid in 84 equated monthly installments inclusive of moratorium of
maximum 3 months.
Appraisal of loan The economic viability should be worked out as per the overall income
generated and surplus for loan installment / interest payment from the existing
business operation of the unit.
Average DSCR should be minimum 1.25.
Margin and Asset Coverage
Ratio
Margin will be 20% of the cost of vehicle on road (chassis, body building and
initial insurance, registration ,Road Tax & AMC).
Rate of Interest The rate of interest shall be applicable to existing credit rating of the account as
well as aggregate credit limit arrived at after clubbing proposed finance for
vehicle .
Processing Fee,
Documentation charges etc
For accounts falling within regulatory
definition of MSME :
In terms of HOBC : 102/218 dt. 20-
For accounts not falling within
regulatory definition of MSME but
within the new definition of SME :
03-2009. In terms of HOBC: 102/119 dt.19-09-
2008.
Security i. Primary : Hypothecation of the vehicle purchased out of the proceeds of the
loan. Banks name as charge holder to be got entered in the books of the RTO
and also the Registration certificate.
ii. Collateral : Micro and Small (Services Enterprises), can be sanctioned
collateral free term loan up to Rs. 100 lakhs, subject to coverage under
guarantee provided by Credit Guarantee Fund Trust for Micro & Small
Enterprises.(CGTMSE) For loans above Rs 100 lakhs , suitable collateral
security to be obtained depending upon the merits of individual cases.
Comprehensive insurance policy covering various risks including civil
commotions and riots should be arranged. The policies should be
renewed from time to time and copy retained on branch record. Vehicles to
be insured in the name of the borrower only but banks interest to be got
noted in the insurance policy.
The bank will conduct its own due diligence (including pre-sanction visit).
As per the banks scheme of delegation
Hypothecation Agreement no. CHA2/CBD 13
Deed of Guarantee No.OD-194 ( If applicable )
Blank Transfer forms duly signed by the borrower to be kept on record.-
Form 29 and 30.
Undertaking to inform Engine No. Chassis No.
Letter addressed to Insurance Co. duly signed by the borrower authorizing
them to pay claims directly to the Bank.
Stamped letter signed by Body Builder. (where applicable) that the vehicle
is in his custody for Body Building.

Other supporting documents as applicable i.e.

Identity/Residence proof
Photograph of borrower/co borrower and guarantor with their
signatures attested by the their Bankers.
Balance sheet and profit loss statement of last two years in case of
firms/companies.
Partnership letter in case of partnership firms.
Copy of Memorandum and Articles of Association, certificates of
Incorporation and Commencement of business duly attested and copy
of board resolution for a availing the loan in case of limited companies.
For borrowers already having vehicles, copy of Registration Certificate.
and
PDCs to be obtained and kept on record.
Disbursement to be made direct to the suppliers by means of an account
payee draft/pay order and acknowledgement to be obtained.
All branches of the Bank.
The branch shall maintain all the necessary follow up and controls post
disbursal as per extant instructions like carrying out inspection, ensuring
entry of banks name in the RC book and copies of RC/route
permit/insurance to be placed on bank record.
The vehicle to bear prominently the legend Hypothecated to Bank of India
___________ Branch

4. Star Personal Loan
Star Personal Loans

Star Personal Loan Scheme provides loan to meet various Personal requirements of customers and their family.
Bank offers loans for marriage expenses, medical expenses, educational expenses, purchase of consumer durables
etc. Maximum quantum of advance is Rs.10.00 lakhs, depending upon the income, with very attractive interest rate
and easy repayment plan.
Please approach our nearest Branch and avail the loan to fulfil your personal needs.
Product BOI Star Personal Loan Scheme
Eligibility Salaried employees, Professionals and individuals with high net
worth, regular pensioners or family pensioners drawing regular
monthly pension through Branch, Staff members, retired
employees (other than dismissed/compulsorily retired) of our
Bank.
Types of advance Demand/Term Loan/Overdraft (reducible as per repayment
schedule)
Overdraft limit (not reducible as per repayment schedule)
maximum up to Rs.1 lac to confirmed permanent employees of
Central/State Govt. /Reputed Corporates and PSU's.
Purpose Clean/Unsecured loans
Marriage expenses of self,
son, daughter or a
dependent near relative.
Medical Expenses
Secured loans

Repayment of existing
housing loans from other
banks/Financial
incurred/to be incurred for
self, spouse, children,
dependent near relative.
For education of
self/spouse/ children/ near
dependent relatives.
For repairs/ renovation/
extension of existing
house/flat.
Any other personal
expenses of bonafide
nature as approved by the
Bank
Institutions, etc.
Repairs/ Renovation/
Extension of House
property. Education of
self, spouse, children, near
dependent relatives.
Purchase of consumer
durables, computers,
professional equipments
etc.
Max. Loan
Min. Size of loan
Rs.2.00 lacs
Minimum size of loan: - At
Metro and Urban Centres:
Rs.10, 000/-
At Rural and Semi Urban
centres: No minimum size of
loan.
Rs.10.00 lacs
Minimum size of loan: - At Metro and
Urban Centres: Rs.10, 000/- At Rural
and Semi Urban centres: No minimum
size of loan.
Quantum of Advance 10 times of monthly net
Emoluments(take home
pay) in case of salaried
Employees
50 % of Gross Annual
Income as per last Income
Tax Returns for
professionals/individuals
of high net worth
20 times of monthly Gross
Emoluments in case of
salaried Employees
100 % of Gross Average
Annual Income as per last
three years Income Tax
Returns for
professionals/individuals
of high net worth
Note :While fixing the limit. It should be ensured that the net
take home pay / Income (net of EMI of the proposed advance) is
not less than 40 % of gross income of the applicants.

Product BOI Star Personal Loan Scheme
Rate of Interest (Floating
Rate of Interest p.a. at
monthly rests)
5.00 % above Base Rate.
(Presently 15.20 %)

4.00 % above Base Rate.
(Presently 14.20 %)

Interest concession to women - 0.50
%
[All borrowers to be women]

For Senior Citizens 3 % above BR.
(presently 13.20 %)

Financing secured under tie-up
arrangement 4 % above BR.
(Presently 14.20 %)
Interest concession to women - 0.50
%
[All borrowers to be women]
Repayment 36 Equated monthly instalments
w.e.f. one month after first
disbursement. Exceptional cases up
to 60 months
Maximum 60 Equated monthly
instalments w.e.f. one month after
first disbursement from loan account.
Security Equitable/Legal Mortgage of commercial or residential properties.
Hypothecation charge on assets acquired.

Collateral security in the form of pledge of gold/gold ornaments, NSC/Indira
Vikas Patra, Bonds, Assignment of LIC policies, Relief Bonds etc.
Processing/Handling
charges
One time @ 2.00 % of loan amount Min. Rs.1, 000/- and Max. Rs.10, 000/-
Pensioners: One time @ 2.00 % of loan amount, min. Rs. 500/- and max. Rs.
2,000/-.
No processing charges for Senior Citizens (60 years & above)
Other Charges Stamp charges for documents: At actual




3.3.3 PROCEDURE OF TAKING LOAN FROM BANK OF INDIA


The procedure associated with a term loan involves the following steps:

Process of loan

1. Submission of application
2. Lending committee
3. Primary assessment
4. Final assessment
5. Branch head sanction
6. Documentation
7. Creation of security
8. Disbursement of loan

1. Submission of application

The first step is the submission of duly filled in form or the loan application. It is the choice
of the customer as to which type of loan he wants to avail and accordingly the prescribed
application is required to be submitted by him depending upon his needs.

2. Lending Committee

At the Branch level the final assessment is done & decision is taken either to accept or reject
the application. Due weightage is given to experience of the promoter, security aspect,
economic viability and feasibility of the project.

3. Primary assessment

When the application is received, the credit officer of the bank scrutinizes the application
form to ascertain whether it is complete in all respect for processing. If it is incomplete the
borrower is asked to provide the required additional information. When the application is
considered complete, the bank prepares a flash report, which is essentially a summarization
of the loan application, to be evaluated at the Senior Level. On the basis of evaluation of the
flash report, a collective decision is taken whether to go about the project or not. The factors
taken into account are: location of the project, prior experience of institution in handling
similar projects, representation of institutions in the state and promoter group, and existing
work load of the institutions.

4. Final assessment

After referring the application form and appraisal, the credit officer puts his recommendation
for sanction of the loan to the Sanctioning Authority.

5. Branch head sanction

The applicants eligibility as per the norms provided by the considering his gross income after
deducting his liabilities (which is also known as Net Worth) his actual repayment capacity is
ascertained as per norms.

6. Documentation

Once the Loan is sanctioned the borrower/guarantor is required to execute various standard
documents of the Bank. This is done to ensure Banks repayment or else Bank can proceed
against them in a court of law on the strength of these documents.

7. Creation of security

The term loans are secured through the first mortgage, by way of deposit of title deeds of
immovable properties and hypothecation of movable properties. As the creation of mortgage,
particularly in the case of land, tends to be a time consuming process, the institutions permit
interim disbursement against alternate security (institution the form of guarantees provided
by the promoters).
8. Disbursement of loan

After the loan is sanctioned, documents are executed and securities are charged, then Bank
issues a sanction letter to the borrower. Thereafter the account of borrower is opened in the
Branch. Disbursement is made by means of Demand Draft/ Payslip of the bank drawn in
favour of supplier of item. For this margin money is recovered from the borrowers account.

Credit Rating

Bank of India uses standard credit rating done by standard credit rating institutions, such as
CRISIL. Apart from this, the Bank also uses its internal Credit Rating of the borrowers. It is
different for the SME and for retail credit.
In case of personal loans, the credit score is used to check whether the borrower is
eligible for the sanction of credit or not. A minimum of 20 marks is needed for the
sanction of retail/ personal loan.
In SME sector, the credit score is used to determine the interest rate to be charged on
the borrowers.

Rating Sheet for Personal Loan

Criteria Options Score
1. Age
Maximum Marks - 5
>20<25 Years 2
>25<30 Years 4
>30<40 Years 5
>41<50 Years 3
>51<55 Years 2
> 56 Years 0

2. Length Of Service
Maximum Marks - 5
>10 Years in Current EMPL 5
>7<10 Years in Current EMPL 4
>5<7 Years in Current EMPL 3
>3<5 Years in Current EMPL 2
1-3 Years in Current EMPL 1
Below 1 Year 0

3. Period In The Business/
Profession
Maximum Marks - 5
Above 5 Years 5
>4<5 Years 4
>3<4 Years 3
>2<3 Years 2
>1<2 Years 1
Below 1 Years 0
Employment Details
(Working With / In)
Maximum Marks - 10
PSUs/Banks/Insurance Companies 10
Multinational Companies 9
Government Departments 8
Other Corporates 7
Small Sector (Pvt. Ltd/Partnership/Proprietorship) 4
Unorganised Sector 2
Professionals & Self
Employed Persons
Maximum Marks - 10
Doctor 10
Lawyer/C.A./I.C.W.A./Architect 8
Big Business Operator (Industry/Trade/T/O>50 Lacs) 8
Small Business/ Shop Owner Operator (Industry/Trade/
T/O<50 Lacs)
Other Self Employed 3

4. Residence Ownership Of
Residence
Maximum Marks - 5
House is self-owned in the same place 5
House is self-owned at the other place 3
House is owned by spouse 3
Rented house in own name for >5 years 3
Rented house < 5 years 0

5. Family Composition /
Dependents
Maximum Marks - 3
Dependents < 2 3
Dependents >2 - < 4 2
Dependents > 4 0

6. Ownership Of Car/
Telephone/Credit Card
Maximum Marks - 4
Car Owner + Telephone Owner 4
Only Car Owner 3
Only Telephone Owner 2
Only Holding Credit Card 1

7. Net Add. Income From
Spouse / Family Members
If Any
Maximum Marks - 5
Income beyond Rs. 10,000/- P.M. 5
Income > 5001 & upto Rs. 10,000/- P.M. 3
Income> 3000 & upto Rs. 5,000/- P.M. 2
Earning Between Rs. 2,000/- - 3,000/- P.M. 1

8. Deposit Position / Potential
Maximum Marks - 5
Average Deposit Last 1 Year > 25,000/- 5
Average Deposit Last 1 Year > 15-25,000/- 4
Average Deposit Last 1 Year > 10-15,000/- 3
Average Deposit Last 1 Year > 5-10,000/- 2
Average Deposit Last 1 Year < Rs. 5,000/- 0

9. Existing Borrowing
Arrangements
Maximum Marks - 3
Bank Borrowers Standard Asset 3
Other Bank/Institutions Borrower No Default 1

10. Whether Salary Deduction
Available
Maximum Marks - 5
Employee Agreeable for Salary Deduction 5
Employer not Agreeable for Salary Deduction but post
dated cheques obtained

Total Maximum Marks 50
Rating Sheet for SMEs
There are three categories in the SME credit scoring:
(A) Financial Risk Score Based on Latest Balance Sheet
(B) Management Risk Score
(C) Business / Industry Risk Score
(A) Financial Risk Score
Parameters Measures Score
1. Sales Growth 15% & above increase over previous year 1
5% & above but below 15% increase over
previous year
2. 0% & above but below 5% increase over previous
year
3 Negative over previous year 4
2. Profitability
(PBITDA/ Sales*100)
25% & above increase over previous year 1
15% & above but below 25% increase over
previous year
0% & above but below 15% increase over
previous year
Negative over previous year 4

3. Liquidity
(Current ratio) (Current
Assets/Current Liabilities)
1.50 & above 1
1.33 & above but below 1.50 2
1.00 & above but below 1.33 3
Below 1.00 4

4. Leverage

(TOL/TNW)
0.00 above but below 1.00 1
1.00 & above but below 3.00 2
3.00 & above but below 4.00 3
4.00 & above 4

5. Coverage

(a) Debt Service Coverage
Ratio
2.00 & above 1
1.50 & above but below 2.00 2
1.00 & above but below 1.50 3
-1.00 & above but below 1.00 4
(b) Interest Service
Coverage Ratio
2.00 & above 1
1.50 & above but below 2.00 2
1.00 & above but below 1.50 3
-1.00 & above but below 1.00 4
(B) Management Risk Score
Parameters Measures Score
1. Management Character
(a) Diversion of Funds There is no possibility of diversion of funds and
there are no group companie
Diversion of funds is unlikely, though there is no
group - marginal amounts may be diverted for
personal use
Diversion of funds is likely on a regular basis to
group entities and for personal use
The borrowing entity is only a front for diversion
to the rest of the
(b) Integrity Well established member of the community whose
integrity is unquestionable
Generally respected by peers and by the
community
Does not always act in an upright and honest
manner
Should repayment capacity be impaired,
management may not cooperate with lender
or no information could be obtained about
managements integrity
4
(c) Business Commitment Promoter is highly involved in this business, has
long standing
1
Promoter is fairly committed to this business but
has substantial
2
This business occupies only a small portion of
his time and investment and his most significant
business interest lies elsewhere
3
No involvement by the promoter, business merely
legacy or promoter diversifying into other areas
where his involvement will increase in future or
unable to gauge commitment
4
2. Management Capacity
Financial Strength Financially very strong; high net worth and
flourishing group
1
Good financial strength; minor group entity may
not be doing well
2
Financial strength is OK; however poor group
entity could impact
3
Very poor financials or financial strength could not
be ascertained
4
Competence Management is very good. Person is well
organised and knowledgeable about the company
and the industry in which he operates
1
Person has reasonable management skills but
weakness in one or two areas is evident. Tasks are
performed satisfactorily.
2
Person exhibits limited managerial skill. Individual 3
does not have a complete understanding of the
business.
Person exhibits a total lack of skill. Decisions are
illogical and loan repayment could be at risk.
4
Business Experience Several years of sound business experience in the
same line and extremely successful
1
Fairly long experience in the same line of business
with limited success
2
Fair experience but in related line of business 3
Very short or no experience in any business 4
Internal Controls Internal control is fairly good and is dependent on
the owners long standing relationship with his
employees
1
Internal control is not very tight and employees
have too much discretion
2
Internal control is totally dependent on the owners
presence in the business location and his personal
supervision
3
No internal control at all the owner does not have
a clue to what is happening
4
Employee Quality Motivated and loyal employees who have a sound
understanding of the business
1
Employees are loyal but do not have much
experience
2
Employees are not motivated and do not contribute
their best
3
Employees are neither motivated nor competent 4
3. Management Succession
Successor Identification Well-defined succession plan in place; business
not dependent on one person
1
Business dependent on one person at present, but
in the event of incapacitation of that person a good
succession plan is in place
2
Succession is not addressed adequately and hence
dealing with a change in the management team
could adversely affect the companys performance;
however the damage can be contained
3
Succession has not been addressed and in the event
of incapacitation of the key person, the business
would suffer financial setbacks
4
Successor Preparedness Successors have far more than the necessary skills,
experience and knowledge about the business
1
Successors have adequate skills, experience and
knowledge about the business even though there
would be some learning and adjustment needed to
be fully capable of replacing current management
2

Successors have some skills and knowledge about
the business but a lot of learning and adjustment
needed to be fully capable of replacing current
management
3
Successors are poorly prepared for assuming the
role of current management and are not currently
nor could they be made capable of replacing
current management
4
4. Management Reputation
Business Loan History Obligations to creditors are met before or within
agreed terms
1
Payments have extended beyond agrees upon
terms on an infrequent basis
2
Often borrower allows bills to extent 60-90 days
beyond payment days
3
Credit checks indicate the borrower is consistently
late, without cause, in paying its suppliers or
information could not be obtained on how the
borrower handles its payment responsibilities
4
Credit Track Record Company has never violated any term and
condition of its loan agreement
1
Company rarely does not meet all terms and
conditions of its loan agreement
2
Now and then the company breaches a significant
term or condition of the credit agreement
3
Company consistently violates loan agreement
covenants
4
Firms Age Firm in existence for more than 10 years 1
Firm in existence for more than 5 years 2
Firm in existence for more than 2 years 3
Firm in existence for less than 2 years 4
Reputation with customers
and suppliers
Excellent relationship with suppliers with no
disruption of supplies. Excellent reputation with
customers resulting in growth and timely payments
1
Good relationship with suppliers with some
disruption of supplies. Good reputation with
customers resulting in growth and generally timely
payments
2
Fair relationship with suppliers with frequent
disruption of supplies. Fair reputation with
customers but increase in credit period and some
defaults
3
Poor relationship with suppliers. Poor reputation
with customers with substantial increase in credit
period and high defaults
4
(C) Business / Industry Risk Score
Parameters Measures Score

1. Customer Quality and
Concentration

Diversified customer base having reasonable size,
stable purchase pattern from the firm and likely to
pay outstanding invoices on a timely basis
Generally diversified customer base who may
not have either a reasonable size or a stable
purchase pattern from the firm but is likely to pay
outstanding invoices on a timely basis. There may
be a few large customers.
Customer has neither reasonable size nor a stable
purchase pattern from the firm but is likely to pay
outstanding invoices on a timely basis. The firm
may have only a few customers with little product
diversification
Customers are not expected to pay on time. The
firm may have only 1-2 customers


2. Supplier Quality and
Concentration

Firm has a choice of suppliers supplying quality
goods & services
Firm has a choice of suppliers supplying average
quality goods & services
Firm has very few suppliers supplying goods &
services. Quality of goods & services is not very
good
Monopsonistic situation with no control over
Quality


3. Impact of Competition on
GP Margins

Current industry structure not expected to lead to
decline in GP margin
Industry competition may result in marginal
decline in margins
Industry competition has resulted/may result in
significant decline in margins
GP margins have declined significantly due to
competition and expected to decline further


4. Sales Trend (product)

Product has no substitutes, regulatory threats
demand will remain stable or grow
Product has limited substitutes (other brands or
other products) and regulatory threats; however,
this will not pose a threat to the borrower
Demand for product may be affected by lowerprice
substitutes and regulation; however the
threats is unlikely
Demand faces serious threat due to substitutes and
regulation


5. Regulatory/Fiscal risk-
Impact of duties (product)
There are no foreseen changes in the direct/indirect
tax structure or import/export restrictions which
could impact the industry profitability

While some changes in the direct/indirect tax
structure or import/export restrictions which
impact the industry are foreseen theses may have
some impact on industry profitability
Some changes are foreseen in the direct/indirect
tax structure or import/export restrictions which
impact the industry. These may have a major
impact on industry profitability and affect viability
of marginal players
Significant changes in the direct/indirect tax
structure and/or import/export restrictions which
impact the industry. These may have a significant
impact on industry profitability and viability of
player


6. Technology Dependence
product)

Technology is tested and not expected to change in
the long run
Technology is tested and likely to change in the
medium term
Technology is tested but likely to change in the
medium term
Outdated technology or technology subject to very
fast obsolescence or technology as yet untried/
untested


7. Environmental Impact
(product)

Unlikely to face pollution related problems in the
future
Limited likelihood of facing pollution related
problems in the future
Polluting industry but complies with current norms
which are subject to change
Polluting industry and does not comply current
norms




CHAPTER 4


CASE


ANALYSIS















4.1 - Tools and Techniques:

Percentage analysis
Data Source:
The data collected was Secondary Data, as it was collected from the Banks internal record.
50
4.2 CASE ANALYSIS
4.2.1 PERCENTAGE ANALYSIS OF CREDIT DISBURSED IN BANK OF INDIA
HIRAPUR SME BRANCH
51
Retail Loans:
In Bank of India Hirapur SME Branch the main retail loan disbursed in the FY 2009-10 are:
Table 1:
Type of Credit No. of Disbursed Credit %
Star Personal Loan 57 80.28
Star Education Loan 13 18.31
Star Home Loan 1 1.41
Total 71 100.00
Chart:
Interpretation:
From the table and chart above it can be seen that:


of disbursed loan is Star Home Loan
52
Table 2:
Gender No. of Disbursed Credit %
Male 58 81.69
Female 13 18.31
Total 71 100.00
Chart:
Interpretation:
From the table and chart above it can be seen that:
81.69% loan is disbursed to females
18.31% loan is disbursed to males

Star Education Loan
Table 3:
Gender No. of Disbursed Credit %
Male 8 61.54
Female 5 38.46
Total 13 100.00
Chart:
Interpretation:
From the table and chart above it can be seen that:
61.54% loan is disbursed to males
38.46% loan is disbursed to females
54
Table 4:
Loan Disbursed No. of Disbursed Credit %
Below 3 Lakh 1 7.69
3 L 4L 5 38.46
4L 5L 4 30.77
5L 6L 1 7.69
Above 6 Lakh 2 15.38
Total 13 100.00
Chart:
Interpretation:
From the table and chart above it can be seen that:
38.46% of disbursed loan is between Rs. 3 lakh and 4 lakh
30.77% of disbursed loan is between Rs. 4 lakh and 5 lakh
15.38% of disbursed loan is for Above Rs. 6 lakh
7.69% of disbursed loan is between Rs. 5 lakh and 6 lakh
7.69% of disbursed loan is Below Rs. 3 lakh
Star Personal Loan

Table 5:
Gender No. of Disbursed Credit %
Male 49 85.96
Female 8 14.04
Total 57 100.00
Chart:
Interpretation:
From the table and graph above it can be seen that:
61.54% loan is disbursed to males
38.46% loan is disbursed to females
56
Table 6:
Loan Disbursed No. of Disbursed Credit %
Below 40 thousand 6 10.53
41,001 60,000 5 8.77
60,001 80,000 11 19.30
80,001 1,00,000 17 29.82
Above 1,00,000 18 31.58
Total 57 100.00
Chart:
Interpretation:
From the table and graph above it can be seen that:
31.58% of disbursed loan is for Above Rs. 1,00,000
29.82% of disbursed loan is between Rs. 80,001 and 1,00,000
19.30% of disbursed loan is between Rs. 60,001 and 80,000
10.53% of disbursed loan is Below Rs. 40,000
8.77% of disbursed loan is between Rs. 40,001 and 60,000



SME Credit

In Bank of India Hirapur SME Branch the main SME Credit disbursed in the FY 2009 10 are as
follows:


Table 7:


Schemes No. of credit disbursed %
Small scale industries 12 75.00
Government subsidy linked scheme 2 12.50
Small Business 1 6.25
Professional & self employed 1 6.25
Total 16 100.00

Chart:
Interpretation:


From the table and graph above it can be seen that:

2.5% of disbursed loan is for Government subsidy linked scheme




Table 8: Type of Credit:
Type of Credit No. of Disbursed Credit %
Retail 71 81.61
MSME 16 18.39
Total 87 100
Chart:


Interpretation:
From the table and graph above it can be seen that:
81.61% loan is disbursed to retail sector

















CHAPTER

5

CONCLUSION



5.1 FINDING OF THE STUDY

of the total credit portfolio of the branch. This is justified in view of the fact that
Hirapur Branch has been designated as a specialised branch for SME.

the male borrowers were more than the female borrowers.

and in this case there were more male borrowers than the female borrowers.

lakh band width and the female students were more than the male students.

5.1 LIMITATIONS OF THE STUDY


at time.

utmost secrecy and security.

BIBLIOGRAPHY

1. http://www.bankofindia.com
2. Dash, S.K. (2005). Tit Bits of General Advances & Financial Services (Chapter 1,
8,12)
3. Ministry of Micro, Small and Medium Enterprises (http://msme.gov.in/
msme_aboutus.htm)
4. MSME Act, 2006